India signed a deal to buy 36 Rafale fighter jets from France on Friday for around $8.7 billion (Rs 59,000 crore approx), the country's first major acquisition of combat planes in two decades and a boost for Prime Minister Narendra Modi's plan to rebuild an ageing fleet.

The air force is down to 33 squadrons, against its requirement of 45 to face both China, with which it has a festering border dispute, and nuclear-armed rival Pakistan.

French Defence Minister Jean-Yves Le Drian signed the agreement with his Indian counterpart, Manohar Parrikar, in New Delhi, ending almost 18 months of wrangling over terms between New Delhi and manufacturer Dassault Aviation.

India's defence ministry said it would confirm the exact price later on Friday, but a ministry official said it was 7.8 billion euros ($8.7 billion).

Air force officials have warned for years about a major capability gap opening up with China and Pakistan without new state-of-the-art planes, as India's outdated and largely Russian-made fleet retires and production of a locally made plane was delayed.

India had originally awarded Dassault with an order for 126 Rafales in 2012 after the twin-engine fourth-generation fighter beat rivals in a decade-long selection process, but subsequent talks collapsed.

Modi, who has vowed to modernise India's armed forces with a $150 billion spending spree, personally intervened in April 2015 to agree on the smaller order of 36 and give the air force a near-term boost as he weighed options for a more fundamental overhaul.

The first ready-to-fly Rafales are expected to arrive by 2019 and India is set to have all 36 within six years.

Dassault Aviation said in a statement it welcomed the contract signing.

FeaturesThe features that make the Rafale a strategic weapon in the hands of IAF include its Beyond Visual Range (BVR) Meteor air-to-air missile with a range in excess of 150 km.

Its integration on the Rafale jets will mean IAF can hit targets inside both Pakistan and across the northern and eastern borders while staying within India's territorial boundary.

Pakistan at present has only a BVR with 80 km range.

During the Kargil war, India had used a BVR of 50 km range while Pakistan had none.

However, Pakistan later acquired 80-km-range BVR, but now with 'Meteor', the balance of power in the air space has again tilted in India's favour.

'Scalp', a long-range air-to-ground cruise missile with a range in excess of 300 km, also gives IAF an edge over its adversaries.

Sources said the "vanilla price" of just the 36 aircraft is about 3.42 billion euros. The armaments cost about 710 million euros while Indian specific changes, including integration of Israeli helmet-mounted displays, will cost 1,700 million euros.

Associate supplies for the 36 fighter jets will cost about 1,800 million euros while performance based logistics will cost about 353 million euros.